January 2015 fuel price update

Driver disillusion spurred supermarket pump price cuts

UK average petrol prices have fallen to their lowest since Christmas 2009

UK average petrol prices have fallen to their lowest since Christmas 2009, following a monthly fall that was only half a penny short of the second biggest ever recorded by the AA. A family with two petrol cars is now spending £50 a month less on fuel than in the summer.

However, although a 60% collapse in the oil price since June is the primary cause, new government figures show that supermarkets were losing a significant share of the fuel market and needed to slash pump prices dramatically to counter driver disillusion with them.

Petrol down 7.41p, diesel down 6.05p

Mid-January average UK petrol prices have dropped to 108.91p a litre, down 7.41p from mid-December’s 116.32p a litre, according to January’s AA Fuel Price Report. Average diesel prices are down 6.05p, now averaging 116.11p a litre compared to 122.16p a month ago. These prices were polled before this week’s new supermarket price cuts reached the forecourts.

Record drops

The 7.4p monthly petrol price reduction compares with the 7.9p fall following the end of the Lebanon conflict in late summer 2006. Both are substantially behind the record 11.5p-a-litre collapse between October and November 2008, following the credit crunch.

£50 a month less

Even so, a family with two petrol cars is spending around £16.30 a month less at the pump than in mid December, and more than £50 a month less than in July when petrol peaked at 131.70p a litre (typical 55-litre fuel tank). The cost of filling a Transit-type van (80-litre tank) fell £4.84 this month, and is £16.21 cheaper to refuel than in July when diesel hit its summer high of 136.37p.

£1 a litre

Petrol priced at £1 a litre re-surfaced this week, the first time since the UK average was last below that level in late May 2009. Asda also announced a national price of 103.7p a litre on Monday, but there still remains some way to go before the UK average price nears the 99.9p mark.

$2-a-barrel for 1p a litre at the pumps

Industry experts expect the £1 litre to appear at more forecourts if the oil price crashes to $40 a barrel, but there is no guarantee that the UK average will reach that level. The industry’s rule of thumb is that it takes a $2-a-barrel change in the price of oil, at a constant exchange rate, to produce a penny-a-litre change at the pump. This suggests that even Asda petrol prices need at least a $6 off the current $45 to $46-a-barrel price of Brent crude to make £1 a litre appear on a supermarket forecourt.

Supermarkets slashing prices

If 99.9p does return to UK pumps, much of the impetus will have come from all of the big four supermarkets slashing prices to get drivers back to their pumps. Against a backdrop of falling UK petrol sales, supermarkets lost out even more to their non-supermarket rivals in the first three quarters of 2014.

In particular, Asda has announced some of its price cuts before the handful of highly-competitive petrol stations east of London have nipped in before them, as has often happened recently. Other supermarkets, particularly Tesco, have announced the same price reductions across all their forecourts on a couple of occasions, rather than reacting selectively. A 2p-a-litre drop by them across the board has had the power to drop the UK’s average price of petrol by at least 1p a litre over a weekend.

Rural towns

A uniform price drop doesn’t always reduce the gap between small rural towns and others.

Buxton, with a population of more than 20,000, has now come under the spotlight for supermarket petrol at 109.9p a litre on Monday – a penny above the UK average and 4p dearer than in towns with competitive supermarket prices.

Other rural towns paying 4p a litre more for their cheapest petrol include places like Ludlow in Shropshire with 11,000 residents and Liphook in Hampshire with a population of 7,000.

European Commission approves new rural fuel tax cut

On 15 January the Treasury announced EU approval for a 5p fuel duty rebate for remote rural communities in England and Scotland.

Fuel duty relief of 5p a litre for remote rural communities on mainland UK is a huge boost to people and businesses in those areas. Much higher mileages and often lower incomes has made petrol and diesel price spikes in recent years close to catastrophic.

But, the lack of fuel price transparency means that residents will not be able to tell if the full 5p benefit is being passed on or not – and retailers will not be able to prove it to their customers.

When the rebate arrived in Shetland, it coincided with a spike in wholesale prices. What should have been a moment of joy and relief turned into a storm of accusations.

Many rural towns would say that predictions of petrol at 99.9p a litre are a bad joke as they continue to struggle with the pump price lottery

Edmund King, AA president

Pump price lottery

“A £50 cut to a two-car family’s monthly petrol bill is a huge boost after more than five years of squeeze on the necessities of modern life, including fuel. This week, a £1 litre has appeared over the horizon although it’s not guaranteed to appear in every town. In fact, many rural towns would say that predictions of petrol at 99.9p a litre are a bad joke as they continue to struggle with the pump price lottery,” says Edmund King, the AA’s president.

“Even so, it has to be recognised that the supermarket price war that may have been a bit of a phoney in the past is a full-blooded fight back now. Certainly, drivers have increasingly given them the cold shoulder through 2014, mainly because price-matching across a locality takes away the incentive to go specifically to a supermarket for fuel – unless it has rock-bottom prices.

Grocery shopping

It would be wrong, though, to write off the big out-of-town supermarket store as a draw for motorists. Their popularity may return if lower pump prices eventually restore the old travel patterns.

Last summer, an EU consumer survey found that 42% of UK drivers complained about having to queue at fuel stations as opposed to an EU average of 21%. Only so many cars will fit on a fuel station forecourt when it’s busy - 16% of AA members who grocery shop at petrol stations say they often have no option but to park at a pump.

The AA-Populus panel questioned 18,336 AA members in August about the appeal of grocery shopping at petrol stations and found that 69% never do. That still means a third take advantage of the boom in shops on forecourts, but the majority look elsewhere. With crashing pump prices, the big supermarket stores still have it all to play for – providing they don’t take the fuel-buying consumer for granted again.

National and regional

Across the UK, the South West, Yorkshire and Humberside, the North, and Northern Ireland are enjoying the lowest petrol prices, all averaging 108.8p a litre. East Anglia continues to suffer from the most expensive with an average price of 109.4p a litre.

The average price of diesel is cheapest in Northern Ireland, at 115.7p a litre, while Scotland is most expensive, averaging 116.9p a litre.